The Story of Gryphon Gold Corp.

The story of Gryphon Gold isn’t just a story about one company. It’s the account of a “death-spiral loan” business model that has attributed to the demise of an estimated 14 Canadian mining companies with a minimum of $450 million of lost public shareholder equity.

Court Filings
Press Releases

History and Background

Borealis gold mine (the “Mine”) is a gold and silver mine near Hawthorne, Nevada once owned by Borealis Mining Company (“BMC”). The Mine was originally opened in the 1980s and operated by another entity, Echo Bay Mines. At that time, the Mine was operated to crush and leach fresh ore to produce gold and silver, which it did profitably for many years producing over 600,000oz of gold. Due to the drop in gold prices in the 1990s, the mine was closed and laid dormant. In 2006, Gryphon Gold Corporation (“Gryphon”), purchased the Mine by acquiring BMC. Bockhold/Dawson was a substantial stockholder of Gryphon and had been a substantial stockholder since December 2005. Prior to its bankruptcy, Gryphon’s stock was traded on the Toronto Stock Exchange and in the United States in the over-the-counter market.

The Borealis Mine (Gryphon Gold Corp.)

From 2006 until 2011, Gryphon took the necessary steps to re-open the Mine. In 2011 BMC began operating the Mine by using a re-leaching process. The re-leaching process used previously leached ore to extract gold, rather than mining and leaching fresh ore. Initially, the gold and silver was collected on activated carbon inside steel tanks or columns that were sold to a refiner, which then extracted the gold and silver from the carbon. By May 2013, BMC completed an adsorption, desorption, and recovery (“ADR”) system, and the Mine began to extract the gold and silver itself.

Waterton, which had obtained its equity investment by using an alleged fraudulent scheme, retained its investment free and clear of debt.

​In January 2012, Gryphon underwent a change in management. James O’Neil, previously of Jipangu International, which owned and operated a different mine in Nevada, was named CFO. Shortly thereafter, Gryphon’s CEO, John L. Key, was terminated, and O’Neil was appointed interim CEO and appointed to Gryphon’s Board of Directors. John L. Key resigned from the Board, and his son, John K. Key, was terminated from his position as the General Manager of BMC.

A bad deal, right from the beginning

At this time, and according to O’Neil, Gryphon was in need of capital to continue as a re-leaching operation. It was unclear why management was not processing ore that was 10x the grade. O’Neil reached out to Waterton, whom he had worked with to obtain financing in his previous positions. Gryphon and Waterton agreed to the terms of debt financing and, over the next year, Waterton provided several additional rounds of debt financing to Gryphon. There is evidence that O’Neil failed to consider other sources of financing other than Waterton. Commenting on a term sheet provided by Auramet Trading, Gryphon Director Terance Cryan said, “I agree Auramet is a superior offer to Waterton.”
After several rounds of debt financing, and still allegedly needing capital to operate the Mine, Waterton and Gryphon agreed to a debt for equity transaction in January 2013. In that transaction, Waterton obtained a 60% controlling equity interest in BMC in exchange for Waterton writing off $17 million (in principal and interest) of Gryphon’s outstanding obligations to Waterton, which totaled $23 million at that time. Gryphon retained a 40% equity interest in BMC. But that interest was subject to diminution if BMC failed to meet its debt service obligations to Waterton. Before Gryphon closed on the debt for equity transaction, Murray Bockhold and Jerry Baughman (former Gryphon director and largest stockholder) met with O’Neil and presented alternative financing that would have permitted Gryphon to retain its 100% interest in BMC. The Gryphon board rejected this alternative and entered into the debt for equity transaction with Waterton.

Photo of the additional pond built during “bankruptcy.”

The debt for equity transaction was doomed from the beginning because Gryphon was purposefully not mining fresh ore so it did not generate  sufficient revenues to meet its obligations to Waterton. As a result, shortly after the transaction closed, Gryphon was on the verge of losing all of its equity interest in BMC. In an attempt to prevent that, Gryphon’s stockholders filed for appointment of a receiver to put Gryphon into bankruptcy. In response, the Gryphon board filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code on July 29, 2013. Various forensic audits and valuations of the Mine were attempted during the bankruptcy proceedings, including by Pricewaterhouse Coopers, Meridian Advantage, and Micon International Ltd., using information provided by Waterton, who was in control of the Mine. Based on those valuations, Waterton moved to dismiss the proceedings, claiming that there was no viable plan of reorganization. Waterton represented to the Court in its motion to dismiss that “Gryphon has no operations, no employees, and no income of any significance.” (See ECF No. 341 at 12, In re Gryphon Gold Corp., No. 13-51496 (Bank. Nev. Apr. 4, 2015).)

Evidence has now been uncovered that, in our opinion, clearly indicates that after Waterton took over ownership of the Mine in January 2013, and during the bankruptcy proceeding, they purposefully suppressed the value of the Mine to support their submissions to the bankruptcy court that the Mine could not turn a profit.

The only “income” Waterton claimed the Mine had was “tax, telephone and security deposit refunds totaling $4,852.00.” Id. Waterton further claimed that, during the pendency of the bankruptcy proceeding, there was “no cash flow from operations, and an absence of any reasonable likelihood of rehabilitation.” Id. at 16. Such statements were in the face of Waterton reporting to the Nevada State Tax Department that the Mine generated $72 million in 2013/2014 (See Nevada Dept of Taxation – Net Proceeds of Minerals Bulletin). Nonetheless, and in spite of the US Trustee filing an Adversary Complaint alleging 9 counts of fraud, the bankruptcy proceeding was ultimately dismissed, with the Court holding that the Mine, even after restructuring, could not be run profitability. This dismissal resulted in Waterton taking full ownership of the Mine, and Bockhold/Dawson losing its equity investment.

Therefore, as a result of the bankruptcy, which Waterton orchestrated, the stockholders of the Mine, such as Dawson and other clients of Bockhold Investment Management Group, were completely wiped out. Waterton, which had obtained its equity investment by using an alleged fraudulent scheme, retained its investment free and clear of debt.

​Waterton’s Alleged Fraudulent Activities

Evidence has now been uncovered that, in our opinion, clearly indicates that after Waterton took over ownership of the Mine in January 2013, and during the bankruptcy proceeding, they purposefully suppressed the value of the Mine to support their submissions to the bankruptcy court that the Mine could not turn a profit.  For example, the bankruptcy Trustee’s Special Counsel, Greg Wilson, conducted a site visit during the bankruptcy proceeding.  Former Mine employee and mining expert Steve Craig attended that visit.

Waterton executives at the Borealis property during site inspection.

Evidence and testimony

Mr. Craig discovered evidence of carbon being held in the pregnant pond in the form of carbon fines residue on the walls of the pond.  (See S. Craig Affidavit)  At the time, Mr. Craig thought that the carbon residue he saw was the result of a leak or some other benign action.  Mr. Craig also asked one of the principals of Waterton about the source of coarse carbon visible near the pond, who explained it away as, “operator error” – an employee had simply dropped  a carbon super sack there by mistake. The presence of carbon in the pregnant pond is significant because it is contrary to industry best practice.  After ore is leached, the gold-rich solution is sent directly to the ADR where the gold in the leaching solution accumulates in the carbon columns.  The columns are then stripped to recover the gold. During the stripping process, small amounts of carbon, known as carbon fines, are produced.  These fines, which contain residual gold, are normally collected, bagged, and sent to a refinery where they are processed to provide additional gold.  This is a semi-continuous ‘closed loop’ process that only results in transitory storing of carbon fines before they are bagged and processed. Industry best practice is very specific – the only time gold-rich solution comes in contact with carbon is in the carbon columns. Coarse carbon and carbon fines are never purposefully deposited into a pregnant pond.

Waterton has accomplished their take-overs with the assistance of Waterton associates, with un-disclosed connections to Waterton, who were placed on Boards of Directors and positions of authority and likely used these positions to assist in the death spiral(s) of the company(s).

After the bankruptcy was dismissed, Mr. Craig discussed the carbon in the pregnant pond with another former Mine employee, Glen Kile.  (See G. Kile Affidavit)  Mr. Kile told Mr. Craig that there was in fact a hose running from the ADR facility into the pregnant pond.  Mr. Craig concluded that Waterton had altered the ADR process by diverting carbon into the pregnant pond where it accumulated – the carbon Mr. Craig previously saw in the pregnant pond and in the lined ditch was not an accident, but evidence of Waterton’s affirmative action to suppress the Mine’s value.

The Waterton “Mining” Process

Conventional process design vs Waterton process design

By putting carbon impregnated with gold into the pond along with coarse carbon from super sacks and diverting the flow of pregnant solution directly into the pond, Waterton suppressed the profitability of the Mine by failing to recover that gold.  Mr. Craig has provided evidence that the carbon collected in the pregnant pond is about 1600 tons. That amount of carbon approximates to 38,000 ounces of gold based upon the concentration of gold in the carbon.  At a gold price of $1200, that is about US$45 million of unaccounted for value.  As explained above, Waterton’s chief argument during the bankruptcy proceedings was that the Mine could not be run profitably; in reality, it was holding this carbon and not processing it, purposefully suppressing the Mine’s profitability.  Waterton never disclosed that it was holding the carbon and not processing it to the bankruptcy court.  To this day, Waterton continues to store carbon in the pregnant pond.  But it now appears that carbon is being brought into and shipped out of the Mine, with the possibility that Waterton is removing the carbon from the pond to realize its value (See H. Chidester Affidavit and P Artley Affidavit).

There is additional evidence that Waterton suppressed the value of the Mine.  Waterton refused to process fresh ore at the Mine, which, as explained above, the Mine had processed in the 1980s.  Instead, the Mine only processed previously leached ore, which has a much lower yield.

Waterton’s explanation for not processing fresh ore was that the Mine’s equipment was incapable of processing such ore.  Bob Cassinelli, the former general manager of the Mine, disputes those facts.  (See B. Casinelli Affidavit)  Indeed, for a brief period during Waterton’s ownership, fresh ore was mined and processed with great success and profitability, doubling the yield of gold at the Mine.  That processing, once demonstrated to be feasible, was shut down by Waterton.  Failure to proceed with crushing new ore during the bankruptcy proceedings further suppressed the value of the Mine, which was undisclosed to the bankruptcy court.

On September 23, 2016, less than one year from the dismissal, Waterton received approval (See Borealis Permit) from the Nevada Division of Environmental Protection to re-open the Borealis Mine. The permit approves annual production of 7,450,000 tons per year for 5 years and includes the zones of ‘fresh ore’ mineralization that Waterton pleaded during bankruptcy were incapable of being processed.

There’s more to the story

Waterton’s actions to allegedly steal the Mine from the equity investors is not an isolated occurrence; it is Waterton’s business strategy.  Waterton and its respective funds have historically invested in, and or acquired, “distressed” assets and companies, including at least fourteen publicly traded companies. In many instances, they funded, and or over-funded companies beyond repayment ability, indirectly forcing the companies into bankruptcy, where, in many instances, they stood as a stalking horse, and ultimately acquired the company assets. In others, they have forced the company into bankruptcy, submitted an offer to acquire assets, and forced consideration of same through submissions to the TSX to halt trading of shares. Waterton has accomplished their take-overs with the assistance of Waterton associates, with un-disclosed connections to Waterton, who were placed on Boards of Directors and positions of authority and likely used these positions to assist in the death spiral(s) of the company(s). They also purposely vend the assets into an LLC which has no disclosure obligations and their is evidence they ‘sterilize’ corporate records.

Waterton Network

Bockhold/Dawson have made numerous presentations to the BC Securities Commission and the Ontario Securities Commission dating back to the original discovery of suspicious trading activity and improper management and Board conduct. Neither regulator claimed to have jurisdiction to initiate an investigation. This lead to inquiries with IIROC, IMET, the RCMP, Ontario Police, Vancouver Police and the SEC. To date, IIROC is the only agency who have pursued a formal investigation. With the exception of the SEC who have given no reply, the other regulatory agencies claim they do not have jurisdiction to launch an investigation.

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